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Accenture Risk Management:

2012 Risk Analytics Study

Insights for the


Insurance Industry

Contents

Executive Summary

04

Introduction: Risk Analytics in the Insurance Industry

10

Drivers of Risk Analytics in the Insurance Industry

14

Risk Analytics: Making the Investments

16

Maturity of Current Risk Analytics Capabilities


in the Insurance Industry

20

Looking Ahead: Growing More Mature Risk Analytics


Capabilities Through Better Integration

26

Conclusion: Driving Growth and Better Compliance


Through Risk Analytics

30

Executive Summary

Our 2012 Risk Analytics Study


conducted by Accenture Risk
Managementsurveyed more than 450
risk professionals (see sidebar, About
the Research) across several industry
sectors to assess the support for, and
maturity of, risk analytics technologies,
tools, processes and talent. Many of the
components of risk analytics are familiar
to insurerslife insurance companies
as well as property and casualty
insurersbecause they include actuarial
tools, business intelligence techniques,
reporting, data warehousing and other
traditional technologies.
However, in recent years, more
sophisticated analytics approaches and
tools have become available in areas
such as risk aggregation, exposure and
investment concentration, reinsurance
management and capital calculations.
These developments mean that an
insurance company now has the
opportunity to achieve competitive
advantage through risk analytics.

Across all industries studied, support


is strong for analytics as a means to
mitigate risks more effectively, though
the patterns of responses from those
surveyed show that the risk analytics
field is, in many respects, still in
its infancy in terms of its practical
implementations across these industries.
Companies are investing in risk
analytics and intend to increase
those investments, yet the potential
return is often stifled by inconsistent
or incomplete data. This prevents
organizations from generating the
insights needed to support a more
predictive approach to risk management.

(Laggards) has confirmed that these


leaders are indeed ahead of the pack
both in the results achieved and in the
distinctive capabilities of an advanced
risk analytics practice.
For example, 83 percent of leaders, but
only 54 percent of laggards, indicate that
the use of risk analytics has significantly
improved the quality of decision making.
Conversely, one in five of laggards
say their use of risk analytics has not
improved decision making, whereas
only one in fourteen of the leaders
(7 percent) has the same difficulty.

Sixteen percent of the surveyed


companies ranked their risk analytics
capabilities as industry leading.
Although this is a survey-based
self-assessment, further analysis by
Accenture comparing the data from this
group (Leaders) with that of the other
84 percent of the survey group

One reason for these findings appears


to be that, among the leaders, specific
analytics tools are better integrated
into decision-making processes.
For example, 58 percent of leaders
say stress testing is integrated with
strategic decision making for large
projects, while only 34 percent of
laggards say this is so. Risk reporting
is also more mature among leaders:
71 percent note that risk reports are
generated and used by operations
and senior management, compared
with only 50 percent of laggards.
The Accenture 2012 Risk Analytics
Study has found that many challenges
lie ahead for organizations looking to
achieve distinctive capabilities in risk
analytics. What is consistent across the
surveyed groups, however, is that all see
risk analytics as an area that can deliver
competitive differentiation.

Summary of CrossIndustry Findings


The industries studied vary widely in
their business challenges and strategic
goals, so risk analytics takes different
forms across the different companies.
However, based on analysis of the data,
Accenture has identified five common
trends across the industries studied.

1. Investments in risk
analytics are increasing
and executives expect
ongoing developments in
this area.
Executives are supportive
About 95 percent of the surveyed
companies are currently using risk
analytics. About half (49 percent) are
using these techniques in a coordinated
way across the company while the other
half (47 percent) are implementing
solutions in pockets within particular
geographies or business units. The
primary applications of risk analytics are
for risk based capital, managing credit,
and business strategy.

Sixty-five percent of respondents say


that management use and acceptance of
risk analytics within their organization
is either excellent or above average.
Risk analytics leaders are especially
successful in this area: 62 percent rank
themselves as excellent when it comes
to management use and acceptance of
risk analytics, compared with only
21 percent of laggards.

Investments are increasing


In the past year, 87 percent of
organizations increased their
investments in analytics technologies
for managing risk; 58 percent of those
increased their spending more than
10 percent, and 14 percent increased
investments more than 30 percent.
Over the next two years, the vast
majority of organizations anticipate
that their investments in risk analytics
will continue to increase. Investments
are expected to focus mainly on
data quality and sourcing, systems
integration and modeling. These findings
are generally consistent across the
industries studied.
Risk analytics leaders are more likely
to have significantly increased their
investments. Among the leaders,
28 percent have increased their
investments by 30 percent or more,
while only 12 percent of laggards have
made that level of investment.

2. The maturity of risk


analytics is uneven across
essential capabilities and
functions, so the value
being achieved is not yet
robust.
Few companies assess their risk
analytics capabilities as industry
leading
Although about half (46 percent) of
the organizations surveyed rate their
risk analytics capabilities as being
above average, only 16 percent rate
themselves as best in their industry.
About onefourth of companies across
the industries studied are not even using
risk analytics in their organizations at
this time.

More than half of organizations


(57 percent) say that risk analytics
significantly improves decision making.
However, in terms of specific analytics
tools, 62 percent of respondents say
that scenario modeling and stress
testing tools are either not being used
or are only made available to executives,
rather than being integrated into
strategic and tactical decision making.
As noted earlier, risk analytics leaders
are distinguished from their peers in
their ability to drive better decision
making from their analytics capabilities.

Some components of the


technical environment are still
immature
When asked to rate the maturity of
their various specific risk analytics
capabilities, the lowest scores (poor
and fair) were in software (13 percent),
systems integration (12 percent),
and data quality and sourcing (12
percent). These areas are likely to have
the greatest impact on risk analytics
capabilities, processes and solutions.
Risk analytics leaders exceed their peers
in the maturity of almost all of these
technical components. With systems
integration, for example, 40 percent
of leaders describe their capabilities
as excellent, compared with only 16
percent of laggards. Similar disparities
exist between leaders and laggards in a
number of other capabilities:
Business rules development: Leaders,
51 percent claim excellence; laggards,
19 percent.
Modeling: Leaders, 52 percent;
laggards, 18 percent.
Software: Leaders, 44 percent;
laggards, 15 percent.
Reporting and dashboard
development: Leaders, 44 percent;
laggards, 17 percent.

3. Data consistency is a
significant challenge.
In general, data availability is not
a major issue: Only 7 percent of
respondents cited a lack of data
as one of their challenges. The
problem, instead, is often one of data
consistency, rooted in the inability to
integrate analytics and insights across
siloed divisions and functions, severely
compromising the effectiveness of the
overall risk management capability.
Of all respondents, 40 percent determine
their risk analytics data requirements
by collecting data only pockets within
the firm. Just 27 percent of those
surveyed have a fully aggregated view
of risk across their organizations. This
inability to look at risk broadly and in
an integrated fashion has, potentially,
several negative implications for
insurers. In commercial property and
casualty (P&C), for example, simply
understanding exposure by industry
can be difficult because policy systems
could be based on Standard Industry
Classification (SIC) or North American
Industry Classification System (NAICS),
while investment and credit systems
are often based on the Global Industry
Classification Standard (GICS).
Leaders show significantly more
advanced capabilities in data quality
completeness, accuracy and consistency
in both producing and collecting data.
Fifty-four percent of leaders describe
their capabilities in data quality and
sourcing as excellent, compared with
only 19 percent of laggards.
More than 54 percent of leaders
note that they are able to take a fully
integrated view of risk aggregated
across models, while only 22 percent of
laggards claim this capability.
Laggards are more likely to have trouble
with siloed data. Forty-four percent say
that data about risk events is collected
in pockets internally within the firm,
while only 23 percent of leaders say this
is so.

4. Risk analytics is
currently more preventive
and reactive than
predictive.
Only about one-third of companies
studied (36 percent) say their risk
management capabilities are proactive
and strategic; 46 percent say their
approach is primarily preventive; and
almost one in five (18 percent) say
their risk management capabilities
support merely reactive responses
to events. Spending also reflects the
relative scarcity of proactive risk
management: The allocation of risk
resources, across all industries, is
primarily for preventive activities.
Far greater percentages of leaders are
apt to say they use analytics in fraud
prevention82 percent, compared with
only 52 percent of laggards. Leaders also
link analytics to business strategy more
effectively: 79 percent say they use
analytics in setting business strategy,
while only 60 percent of laggards do so.

5. Lack of expertise in
risk analytics looms as an
important challenge.
Most organizations (71 percent) built
their current risk analytics capabilities
in-house with support from outside
vendors and/or consultants. Twentynine percent do not rely on any external
specialists, rather they use internal staff.
However, only 19 percent of companies
surveyed rank their staffing capabilities
as excellent.
These findings underscore the fact
that analytics is a relatively new field,
and that optimal talent sourcing and
development are not yet in place
at many firms. Organizations need
to consider how best to meet that
challenge, whether it is accelerated
internal development, better hiring or
more comprehensive external sourcing
and collaboration, even on a managed
service basis.

Risk analytics leaders tend to be


challenged less by staffing and
capability issues. Only 11 percent
of analytics leaders are challenged
by a lack of skills to develop risk
models, for example, compared
with 24 percent of laggards.
Research from the Accenture Institute
for High Performance (Counting on
Analytical Talent, Accenture 2010) has
found that analytics talent at many
organizations is not developed and
nurtured effectively. Many companies
do not manage analytical talent as
a distinct and valuable workforce.
Analytics specialists are often
scattered throughout departments;
many companies do not have a clear
picture of who their analysts are or
where they reside organizationally.
From an enterprise-wide perspective,
organizations often have difficulty
making analytics (and its value
proposition) understandable and
actionable to executives and company
professionals less familiar with the
analytics field.
Companies also struggle with how to
structure an analytics team in terms
of whether it should be centralized
or decentralized. Research from
the Accenture Institute for High
Performance revealed that companies
that want to build a strong analytics
workforce are best served by greater
centralization and coordination of
their analytics talent. Doing so ensures
that analysts are working close to
the business on the most important
initiatives and also close to one
another to coordinate their efforts
and to promote mutual learning and
support. A centralized approach also
helps organizations give analysts the
kind of meaningful work and career
opportunities that are critical to their
engagement and retention.

Making the right


investments
The Accenture 2012 Risk Analytics
Study has found strong support for
analytics across several important
industry sectors, but also reveals that
many components of the analytics
field are still growing in maturity. In
general companies should be looking to
make focused investments along three
dimensions in particular: technology,
people, and organizational structures
and processes.
Advancements need to be made in
areas such as modeling and testing
but, as our study clearly found,
investments in capability development
will be equally important. As analytics
grows in importance, especially within
the risk function, better approaches
to talent sourcing, development
and retention will be essential,
especially as the value of top talent
becomes clearer to companies.
The range of risks to which an
organization is susceptible is increasing
in scope and severity; events in the
external worldnatural disasters,
political upheaval and economic crises
should heighten stakeholders awareness
of systemic risks, which can only be
addressed with a more holistic and
integrated approach to data gathering
and analysis.
However, as our study found, risk
analytics is rarely integrated across
functions and business unitsa problem
that can be addressed by looking at
how different groups interact and
cooperate. As organizations advance
their analytics capabilities they should
be looking for the interdependencies
and not get trapped in siloed views or
single-dimension structures. This more
holistic approach could require upgrades
to current data governance capabilities.

Modeling and testing tools are


important, but only if they are
incorporated into business processes,
especially processes for decision
making. The ability to leverage analytics
technologies to generate timely and
relevant business insights depends
on working to support behavior
change and new ways of working.
If tools are available but are not
incorporated into workflows, they
will likely have minimal impact.
The challenge for all institutions is the
proper focusing of their risk analytics
efforts. There is hardly a major company
anywhere that is not actively involved
in the field of analytics. But companies
need more than just new tools. What
they actually require is more insightful
and timely information to make more
effective decisions that drive business
value. The human elementand
the leadership elementare always
essential. It is too easy to get lost in the
volumes of data, and be romanced by
the power of technologies and tools. It
is equally important to simply know how
to ask the right questions. Generating
meaningful insights, and harnessing the
power of analytics to anticipate risks
before they arise, depends ultimately on
knowing what you are looking for.
We hope the findings of this research
will spur discussion and further
reflection. Please contact me at
steven.r.culp@accenture.com for
more information.

Steve Culp
Managing Director
Accenture Risk Management

About the Research


The 2012 Risk Analytics Studyconducted by Accenture Risk
Managementis based on a survey of 465 managers and executives
from all major geographic regions. Respondents were from the
insurance, banking and chemicals industries and all held corporate
positions in which they were responsible for developing or utilizing
industry-specific analytics capabilities.
The purpose of the study was to assess the relative maturity
of risk analytics methods, tools, technologies and processes;
to determine the effectiveness of those factors in driving
business, customer and market insights to support better
decision making; and to identify current trends.
Breakdown of respondents by region

Breakdown of respondents by industry

8%

19%

9%

35%

Region

20%

Industry

19%

28%

40%

22%

Europe

North America

ASEAN (The Association of Southeast Asian Nations)


Japan/South Korea

China

Banking
Insurance - Life

Insurance - P&C
Chemicals

Note: Due to rounding, figures may not total 100%

Note: Due to rounding, figures may not total 100%

Breakdown of respondents by revenue

Breakdown of respondents by role

8%
25%

32%

16%

Greater than $10 billion


$1 billion to $5 billion

14%

Role

Revenue
28%

23%

16%

38%
$5 billion to $10 billion
$100 million to $1 billion

Note: Due to rounding, figures may not total 100%

C-Level Executive (CEO, CFO, COO, CIO, CMO, CRO)


Senior Vice President, Executive VP or VP
Managing Director, Senior Director, or Director
Senior Manager or Manager
Other (Analysts, Technicians, Actuaries, Underwriter, etc.)
Note: Due to rounding, figures may not total 100%

Introduction: Risk Analytics in the


Insurance Industry

10

Facing ongoing regulatory and


economic pressures, a great many
insurers are looking to improve their
risk management capabilities. Property
and casualty (P&C) insurance companies
are seeking to improve their ability
to respond quickly to risk events and,
even more important, to anticipate
them before they occur. Life insurers
and annuity providerswho must deal
with the long tails of their portfolio
and the ongoing ramifications of the
financial crisis with its low interest
rates and reduced investment returns
are working to define new products,
optimize their overall portfolio and
improve asset performance.
The possibility of taking proactive
steps to avoid issues and stay ahead of
economic, regulatory and market events
is becoming more of a reality due to
advances in risk analyticsquantitative
and qualitative tools and techniques
designed to estimate the impact and
frequency of specific risks, and to
drive positive business outcomes. Risk
analytics technologies and approaches
can augment more traditional reporting,
business intelligence and data
warehousing capabilities with newer
techniques in modeling, claims analytics
and fraud analytics.

But are firms effectively taking


advantage of risk analytics to meet
insurance industry challenges, drive
growth and achieve competitive
advantage? Are they moving beyond
basic analytical applications concerned
mostly with data management to those
that can enable predictive action and
even real-time response? (See sidebar,
Climbing the Ladder.) To answer those
questions, Accenture Risk Management
has completed a global risk analytics
study capturing and synthesizing the
insights from more than 450 analytics
professionals across three industries on
how they use risk analytics to tackle
industry challenges, market volatility
and business opportunities.

However, insurers show strong


commitment to improving their
capabilities in risk analytics. They are
investing in analytics to improve their
risk management capabilities, and
strong majorities intend to increase
those investments in the near term.
Firms are already seeing results. High
percentages of insurance firms agree
that the use of risk analytics has
significantly improved the quality of
their decision-making processes and has
enabled more proactive risk-monitoring.
This is especially true with life insurers:
65 percent affirm the value of risk
analytics, compared to the survey
average of 57 percent. (See Figure 1.)

Moving up the risk


analytics maturity
curve
In general, fairly low percentages of
insurance firms in our survey currently
assess their risk analytics capabilities
as leading edge. Only 16 percent of
P&C companies rank their capabilities
as among the best in their industry,
while 26 percent of life insurers assign
themselves that rating.

Figure 1

Significant percentages of insurance firms agree that risk analytics has improved decision-making and
risk monitoring
How do you characterize the importance of risk analytics in your organization?

57%

58%

65%

58%

48%

Use of risk analytics has significantly improved


the quality of decision making and enables
proactive risk monitoring

23%
18%

17%

17%
16%

23%

22%

14%

24%

28%

2%
All Industries

2%
Insurance Property &
Casualty

6%

1%
Banking

1%
Chemicals

Insurance Life

The organization currently uses risk analytics


techniques but has not seen a major change in
decision making
The organization recognizes the need for risk
analytics and plans to use it
Do not see a need for the use of risk analytics
in the organization

Base size: Total sample.

11

Survey data and Accenture experience


point to several challenges that
insurance companies share with
organizations in other industries
in improving their risk analytics
capabilities. (See Figure 2.)
Enhancing quantitative and qualitative
risk management techniques and
capabilities to meet regulatory
requirements such as Solvency II.
Inconsistent planning and execution
of risk management across multiple
business processes.
Integrating analytics and insights
across multiple data sources, and
siloed divisions and functions.
Lack of expertise and skilled
resources, which can cause delays in
new product releases and result in
project overruns.

Harvesting and managing


data across the enterprise,
due in part to ineffective data
governance, poor data quality
and insufficient data integrity.
Lagging analytics technologies, with
companies not yet reaping the full
benefit of IT advancements.
Inability to communicate results and
insights effectively.
A number of specific capabilities in
risk analytics are important to meeting
these challenges, and some of our
survey results address these capabilities,
including modeling, data management
and reporting, as well as the
effectiveness of firms current systems
and technologies.

However, it is important to remember


that analytics is a means to an end;
that end is the delivery of insights
and timely information to make more
effective decisions that drive business
value. So, a key to our study was
exploring not only data-gathering
processes and capabilities, and not
only technologies and tools (because
it is easy to get lost in the data and
enamored with the tools), but also
issues related to skills and to particular
techniques such as modeling and
stress testing that can help properly
manage and direct an analytics
capability toward meaningful results.

Figure 2

Insurance companies are challenged by a range of technology and process issues in the area of
risk analytics
For your organization, to what degree do the following challenges impede the effectiveness of risk analytics processes?
Medium + High impact

All Industries

Insurance Property &


Casualty

Insurance Life

Banking

Chemicals

Lack of systems integration

71%

78%

66%

74%

63%

Embedding risk analytics into


management processes

69%

78%

66%

70%

59%

Measuring and monitoring expected/


predicted outcomes vs. actual

66%

74%

55%

68%

62%

Availability and quality of internal/


external data

66%

72%

56%

71%

60%

Lack of robust modeling

65%

67%

60%

68%

62%

Outdated legacy systems

67%

66%

57%

75%

65%

Finding the right skilled staff to develop


the models

70%

65%

65%

75%

68%

Migrating capabilities across customer


segments/lines of business/functional
areas

66%

64%

60%

73%

58%

Lack of budget

64%

64%

65%

64%

61%

Developing real-time analytics

68%

63%

62%

71%

72%

Lack of management buy-in

57%

62%

56%

61%

45%

Lack of easy access and use of analytics


information

61%

59%

61%

65%

54%

Base size: Total sample.

12

Climbing the Ladder


Although the field of analytics has not yet reached full maturity, it
has been in practice long enough to ask how effective such solutions
areespecially when it comes to managing and mitigating risks.
As Jeanne Harris and Tom Davenport put it in their recent book,
Analytics at Work, there is a ladder of analytical applications that
increases in sophistication and value as companies move up each rung
(see graphic). The bottom rung of the ladder is focused on getting
the data right. Toward the top of the ladder are more predictive
capabilities, ultimately arriving at a situation where analytics enables
optimal responses to be embedded in processes, leading to real-time
optimization of performance.

Ladder of analytical applications

Real-time optimization
Optimal response
embedded in real-time
process

Institutional action

Predictive action

Prediction and differentiated action embedded in


process

Predictions of response
by target/segment
Differentiated action

Key targets/segments
Key targets and segments
defined

Different approaches for


different targets/segments

Data in order
Well-defined, common,
clean, and integrated
data

Reprinted by permission of Harvard Business School Press. From Analytics at Work: Smarter Decisions, Better Results by Thomas H. Davenport, Jeanne G.
Harris and Robert Morison. Boston, MA 2010, p.83.
Copyright 2010 by the Harvard Business School Publishing Corporation; all rights reserved.

13

Drivers of Risk Analytics in the


Insurance Industry

14

What are the business needs that


insurers hope to address through
better risk analytics capabilities? In
general, ongoing cost pressures are
pushing carriers to manage capital more
efficiently, but to do that, they want
to be more confident about their risk
exposure. Effective risk management
can enable a carrier to free up capital.
Lessons from the most recent global
financial crisis weigh heavily here:
According to Accenture analysis,
some carriers encountered trouble at
that time because of unexpected risk
concentrations in their investments.
Cost can be an element, as well. With
ongoing budget pressure, efficient use
of reinsurance is another important
factor in the equation.
Some regional differences also exist.
Based on Accenture experience, many
firms in the Asia Pacific region are
focused on growth and are competing
fiercely for market presence, requiring
a reconsideration of their business
strategies. In Europe, companies are
under intense regulatory pressure. In
both cases, a transformation of the
companys operating model in light
of risk is important, and analytics is a
key enabler of that operating model
to facilitate regulatory compliance or
growth in market share.

Dealing with
regulation
One of the most important factors
fueling the interest in risk analytics
is improving compliance capabilities
and dealing more effectively with
an increasingly complex regulatory
environment. In our experience,
the Solvency II directive has been a
focus area for insurers across most
European geographies. Even given the
current postponement of the Solvency
II implementation, firms should
consider ongoing investments in their
quantitative and qualitative capabilities
to achieve Solvency II readiness.
Although Solvency II applies to
European firms, our analysis indicates
that there is a more pervasive
mood across the global regulatory
environment that will put additional
pressure on the insurance industry
everywhere to provide policies similar to
those in Solvency II, as a kind of quality
check for insurance groups. The key

building blocks of Solvency IIcapital


calculation models, governance, Own
Risk and Solvency Assessment (ORSA),
internal controls and supervisory
reporting/public disclosure normsare
being adopted by an increasing number
of regulators across the globe.

responding to these risks once they are


identified. A standardized, integrated
approach to risk management for all
business processesavoiding duplicative
processes and unnecessary activities
can help minimize the costs associated
with inconsistent execution.

Driving growth

Transforming the
operating model

Firms are coping with a complex and


ever-changing external environment.
Insurers are managing financial
instruments that are often complex
and that have a high degree of
volatility. Hence, firms often want to
measure and monitor these risks on an
ongoing basis to foster alignment with
their risk appetite. Risk management
can be more effective if integrated
into the strategic decisions of the
firm including management of large
projects. Our survey indicates that
firms realize the importance of risk
analytics for a variety of business
processes including investment
selection, risk selection and pricing,
fraud management and loss reserving.
Risk analytics can support more
precise calculations of risk exposure
to support growth. If insurers have
more sophisticated and well-developed
analytics methods, and if the engines
are generating more accurate and
repeatable results for risk capital
measures, firms can use these results
for more effective pricing, product
development and capital management.
The combination of risk-adjusted
metrics, traditional asset and liability
management, and profitability
performance measurements can provide
the company with a more balanced view
of business performance.
In our experience, insurers efforts
to expand and grow across business
units and geographies can often result
in inconsistent risk management
processes. The processes needed to
identify, analyze, assess, report and
respond to risks related to specific
areas of responsibility can be complex.
In many cases, a consistent risk
management frameworkwhich can
serve as the basis for execution of risk
management throughout the entire
companyis not in place. This can
create a situation in which individuals
involved in different processes do not
use the same standards and data for
recognizing risks and then assessing and

Firms can benefit from a company-wide


integration of risk management so that
information used to assess risk in one
core insurance process is available to
assess other business opportunities
from a risk/reward perspective.
Integration can also support the ability
to comply with new regulations that
often increase the burden on insurers
to provide complete and transparent
documentation of all processes that
bear risks.
Firms should also think about
integrating risk considerations more
widely into decisions regarding
operations, capital management and
management processes. This approach
called a risk-adjusted operating
modelcan help companies manage
their enterprise-wide risks and align
their risk management program with
business and regulatory concerns.
The risk-adjusted operating model,
supported by effective analytics, can
deliver numerous benefits to help
insurance companies drive growth and
deal with regulatory pressure:
Better value generation through
a broader application of risk
management capabilities to support
decision making and the pursuit of
business opportunities.
Improved business decision making
through alignment of overall risk
appetite and business strategy,
helping increase the efficiency of
capital utilization.
Improved business results through
integration of risk and core insurance
processes and the alignment of
processes and systems.
Enhanced operational efficiency
through an integrated and robust
IT landscape, with a comprehensive
and common IT architecture
for multiple functions.

15

Risk Analytics: Making the Investments

16

The Accenture 2012 Risk Analytics


Study found that life insurers as well
as firms in the P&C insurance industry
are investing in analytics capabilities
to better identify, assess and mitigate
risks. In the past year, P&C insurers have
invested more than any of the other
industries studied: 23 percent of the
insurance companies surveyed report
investment increases of 30 percent
or more over the previous year. This
is in comparison to 16 percent of life
insurers and 14 percent globally across
all industries.
Companies intend to continue those
investments. As shown in Figure 3, 63
percent of life insurers, and 62 percent
of P&C insurers, foresee a rise of more
than 10 percent over the next two years.
Compared with other sectors studied,
even banking, greater percentages of
insurers intend to increase risk analytics

spending more than 20 percent. Risk


analytics leaders tend to invest at higher
levels. For example, four out of 10 leaders
have increased investments in risk
analytics by at least 30 percent, while
only two out of 10 laggards increased
investments at that level.
These investment plans reflect the
longer-term, strategic perspective
of the risk function in the insurance
industryespecially for life insurers,
where analytics (modeling, in
particular) is key to understanding
market risk dynamics and their impact
on the balance sheet and on the
profit and loss (P&L) statement.

Figure 3

Many insurers expect to invest in risk analytics at higher levels than other industries
Over the next two years, how does your organization expect investments in risk analytics to change?
49%
43%

41%
36%

34%
28%

28%

27%

25%

24%

19%

19%
12%

2% 1% 1%

19%
15%

14%

13%

14%13%
10%

4%
1% 1%

All Industries

Insurance Property & Casualty

Increase 0% to 9.9%
Decrease 10% to 19.9%

Increase 10% to 19.9%


Decrease greater than 20%

1%

3%
0%

Insurance - Life

Increase greater than 20%

1% 1% 1%

Banking

No change

1% 0% 0%

Chemicals

Decrease 0% to 9.9%

Base size: Total sample.

17

Regional investment
differences

In terms of specific capabilities, firms


are making strong investments to
address data quality and sourcing,
software and modeling. (See Figure 4.)
These investments are integral to
meeting regulatory requirements
(e.g., Solvency II, China Insurance
Regulatory Commission, Japan Financial
Services Agency) and pursuing a
variety of business opportunities.

Some regional findings reflect


slightly different risk analytics
emphases. In North America,
firms report that the highest
importance for risk analytics is in:
Risk selection and pricing (63 percent)

Initiatives include:

Fraud (61 percent)

Advanced modeling capabilities, to


optimize the capital required to run
the business.

Investment portfolio optimization (50


percent)
In Europe and Asia, firms reported the
highest importance of risk analytics for:

Data management requirements


covering data modeling, metadata
management, data quality, data
architecture and security.

Investment selection (67 percent)


Fraud (64 percent)

Implementation of risk-adjusted
performance measures in a consistent
manner across different divisions
of the firm, to promote the use of
appropriate measures for steering,
monitoring and reporting as well as
for operational decision making.

Loss reserving (59 percent)


Risk selection and pricing (58 percent)
North American firms see the primary
objectives of risk analytics as more
accurate underwriting (84 percent),
better claims outcomes and fraud
prevention (75 percent), calculation
of economic capital (68 percent)
and better prospecting decisions

(56 percent). Claims management


and fraud detection emerge as the
highest primary objectives for using
analytics in both life and P&C firms in
North America. Life insurers, however,
place more emphasis on the use of
analytics for regulatory compliance
and pricing. Risk analytics also plays
a major role in renewal decisions for
both life insurers and P&C firms.
In Europe and Asia, risk selection
(71 percent), loss reserving (66
percent) and risk quantification (52
percent) are the top areas where
firms use risk analytics capabilities.
Where are insurance firms
currently focusing their risk
analytics investments?
In Europe and Asia, current spending
is highest for underwriting (33
percent), investments (25 percent)
and distribution (23 percent). Most
risk analytics investments in China
are in distribution, while in Europe,
Japan and South Korea investments
are mostly in underwriting.

Figure 4

Analytics investments are expected to increase, especially in data quality and sourcing, software
and modeling?
Over the next two years, in which areas does your organization expect to increase risk analytics investment spend?
(Select all that apply)

50%
41%

44%

46%

56%

55%

53%
48%

49%

55%
50%

49% 49%

44%

32%
26%

26%
22%

Insurance - Property & Casualty


Data quality and sourcing
Business rules development
Base size: Total sample.

40%

39%

36%
32%

32%

18

58% 58%

30%

35%
31%
25%

25%

Insurance - Life
Systems integration
Reporting and dashboard development

Banking
Modeling
Management use and acceptance

Chemicals
Software
Staffing

27%
23%

In North America, almost 70 percent


of firms are currently investing
in risk analytics for underwriting
and investment functional areas.
Organizations spend more than onehalf of their risk analytics investments
on underwriting, while distribution
sees the least capital. Only one-fourth
(26 percent) are currently investing in
analytics for claims and distribution.

Other important investment areas


include investment portfolio
optimization (54 percent), loss reserving
(44 percent) and fraud prevention
(43 percent). In Europe and Asia, across
most regions, most investments will
continue in risk selection and pricing
(60 percent) and investment portfolio
optimization (48 percent). Chinese firms
are distinctive in their intention to focus
especially on customer segmentation
(53 percent) and loss reserving
(57 percent).

However, risk analytics investments


in underwriting among P&C firms are
almost double what they are for life
insurers. (See Figure 5.)
Over the next two years, risk analytics
investments for North American firms
will be especially focused on the areas
of risk selection and pricing (76 percent).
This finding underscores the need felt
by many carriers to cascade the risk
analysis from the C-suite down to the
individuals in underwriting and sales.
The opportunity is to tie risk selection
and pricing together so carriers can
more readily identify what their most
profitable businesses are, and then
working with distribution to find more
of those lines of business.

In Japan, by contrast, the situation is


quite different. There, P&C companies
are struggling with their Nat Cat
(natural catastrophe) modeling and
also to adapt their economic scenario
generators (ESGs) to reflect the
current volatility in the international
markets and their increased market risk
exposure. This situation calls for firms to
improve their risk analytics capabilities.

What are some reasons for these


spending patterns? In China, for
example, insurers are currently focused
on growing their market share, so
using analytics capabilities to improve
distribution processes is key. Because
most life insurers only have a local
footprint their exposure to market risk
is limited; this may be one reason why
they do not perceive an immediate need
to improve in the area of risk analytics.

Figure 5

North American organizations spend more than one-half of their risk analytics investments on underwriting,
while distribution sees the least capital
Within the insurance functional area, where does your organization currently spend the majority of its risk analytics investments?

38%
52%

61%

25%
17%
11%
13%

8%

13%

17%

5%
All Insurance
North America

3%
Insurance Property & Casualty

21%
8%
8%

Underwriting
Investments
Equal distribution of investment dollars
Claims
Distribution

Insurance - Life

Base size: North America sample.

19

Maturity of Current Risk Analytics


Capabilities in the Insurance Industry

20

The Accenture 2012 Risk Analytics Study


asked insurers to assess their goals and
capabilities in several specific areas
of analytics: modeling, stress testing,
data management and reporting.

Modeling
Modeling plays an important role in
helping insurers comply with regulatory
guidelines and make efficient capital
management decisions that can improve
the bottom line. The proper use of
models can guide management teams of
insurance firms to make more informed
business decisions and take timely
action to mitigate possible losses. More
effective capital calculation models
can help insurers meet their regulatory
requirements and improve business
performance by managing different
products and tracking performance by
business unit.

In general, insurers are not highly


confident in their modeling capabilities:
Only 55 percent of those participating
in our survey rated themselves either
above average or excellent. (See
Figure 6.) Analytics leaders, however,
realize the benefits that modeling can
deliver in improving the efficiency of
capital calculations. In Europe, Japan,
South Korea and China, for example,
a significantly higher proportion of
analytics leaders (76 percent) compared
with laggards (46 percent) employ risk
analytics for capital calculation.

the high cost and complexity of


implementation, internal model
implementation would require
significant resource commitments.
Therefore, we anticipate that internal
modeling may be the preferred choice
of larger firms with more resources.
Although the costs are higher, internal
models can provide a better picture of
risk and can help firms plan their capital
requirements accordingly.

With regard to the selection of


models for deriving capital adequacy
requirements, our study found that 60
percent of insurers would prefer using
an internal model. Several decisions
influence the preferred model for
insurers including the availability
of historical data, implementation
approach and the analytical capabilities
that are available. However, given

Figure 6

Insurers in general are not confident in the maturity of their modeling capabilities
How would you rate the maturity of your organizations risk analytics based upon the components of the risk
analytics process?

24%

24%

23%

18%

44%
31%

Insurance Property & Casualty

34%

32%

Insurance - Life

Banking

Chemicals

Excellent
Above Average

Base size: Total sample.

21

Another 22 percent of insurance


firms, according to our survey results,
currently use a standard model but
intend to move to an internal model in
the future. Sixteen percent preferred a
standard model. These numbers about
the use of internal versus external
models were fairly equal across both the
life and P&C categories. However, some
regional differences exist. For example,
high numbers of insurers in Europe and
Asia (82 percent) plan to use internal
models to derive risk, governance and
capital adequacy levels. (See Figure 7.)

can help determine the impact of


changes in underwriting policy on the
businesss long-term profitability.
Although stress testing has been in
use for many years, it is playing an
increasingly important role in helping
insurance firms evaluate their risk
exposure in different scenarios. In
the current volatile environment, this
evaluative capability is important.
According to Accenture experience,
stress tests have become a common
supervisory tool by which a financial
services regulator can gauge a firms
profitability and solvency under various
simulated, stressed economic conditions.

Scenario modeling
and stress testing

In view of the increasing importance


of scenario modeling and stress testing
for insurers, it was not encouraging
that the insurance firms participating
in our study (particularly P&C firms)
scored below the global average for
using stress testing that is integrated
into strategic decision making for large
projects. (See Figure 8.) As a capability
and tool, our experience indicates stress
testing can play an important role in a
companys strategic decision making.
With the increased focus on stress
testing in the insurance industry, its
use could change soon.

Scenario analysis can help insurers deal


more proactively with risk by helping
them assess the impact of different
potential circumstances and responses.
For example, in todays rapidly
changing regulatory environment,
insurers have a greater need for
capital. Scenario analysis enables a
more structured assessment of the
reduced levels of capital available to
generate income. Similarly, analytics

Data management
Within the insurance industry, the
sophisticated models that can foster
more effective risk management depend
upon the availability of accurate and
validated data, properly organized
and delivered with the right level of
detail and granularity. The terabytes
of data accumulated by insurers each
day constitute an ongoing challenge,
and firms are responding. As our
study found, data quality and controls
have emerged as prominent areas
for increased investment spending
by insurers. Commercial carriers, for
example, often have data challenges
with location concentrations, limits and
deductibles of their various risks.
Another data issue concerns the fact
that Solvency II requirements and other
regulatory measures have cast a harsh
light on the quality, comprehensiveness
and timeliness of insurance firms
data. Many European insurers have
taken initial steps to go through the
regulatory requirements and set up
at least an interim regime to enable
them to calculate, report and create
an initial, end-to-end perspective in
accordance with Solvency II. But

Figure 7

Most insurers in Europe and Asia prefer using an internal model


What is your preference with regard to selection of models for deriving capital adequacy requirements/internal
governance/risk management?

41%
60%
82%

61%

58%
80%

83%

61%
81%

95%

74%

81%
33%

22%

19%

15%

18%

3%
2%
All Insurance Insurance Europe & Asia Property &
Casualty

We utilize an internal model

20%

25%
13%
4%
Insurance Life

14%
5%
Japan &
South Korea

Base size: Europe, China, Japan & South Korea sample.

22

17%
2%
Europe

We utilize a standard model

19%
7%
China

We utilize a standard model, but we plan to


use an internal model in the future
We have not yet made a final decision

Data governance

many firms currently lack sufficient


data quality and improving that
quality will be expected as part of the
changes caused by new regulation.

Sixty-five percent of P&C insurers and


56 percent of life insurers perform
data quality controls when collecting
historical data. Sixty-nine percent of
all insurers have a data policy in place,
and 41 percent have a data quality
department. There are two elements to
data quality to bear in mind. One task
is to get the data right and complete.
Second, however, carriers often have
multiple legacy systems and so they
should work to effectively conform
that data across the systems without
any loss of integrity or granularity to
support advanced risk analytics.

The focus on improved data


management also has implications for
IT systems and capabilities. Insurers
with multiple back-end systemsor
with information stored in silos that
are not accessible to groups that may
require itoften face challenges in
providing consistent, high-quality data
to the risk management function. One
common goal for insurers, therefore, is
to define and implement a framework
for data management to support
both consistency and quality of data
throughout the organization.
Data management is less of a challenge
for analytics leaders than for laggards.
The top two challenges for laggards in
complying with Solvency II requirements
are availability of data (47 percent)
and data quality (47 percent). Leaders,
by contrast, cited issues such as
the continuously evolving nature of
regulations (67 percent) and meeting
regulatory timelines (48 percent), rather
than data problems.

Analytics leaders in our survey are


significantly ahead of their peers when
it comes to a focus on data governance.
For example, for 80 percent of leaders in
Europe, Japan, South Korea and China,
data quality controls are performed
while collecting historical data; this is
true only for 56 percent of laggards.

Like data quality, data governance is


important for the effective management
and use of information by multiple
stakeholders within the company. When
ownership of data is unclear, redundant
data sources may be in use without
clearly assigned responsibilities as to
the manipulation, retention or deletion
of data.

Figure 8

Relatively low percentages of insurers integrate stress testing with strategic decision making
To what degree are scenario modeling and stress testing techniques utilized in your organization?

27%

38%

37%

38%

44%

52%
48%

12%

49%

18%
2%

All Industries

3%
Insurance Property &
Casualty

11%

48%

45%

2%

Insurance - Life

10%
Banking

1%

13%
3%
Chemicals

Stress testing is integrated into strategic


decision making for large projects
Tools are available for usage at the discretion
of the decision makers
Rarely used
Not used

Base size: Total sample.

23

Reporting

in developing processes and systems


for compliance such as Quantitative
Reporting Templates (QRT), Solvency
and Financial Condition Report (SFCR)
and Regular Supervisory Report (RSR).

Based on our study results, life


insurance firms are not particularly
confident in their reporting and
dashboard development capabilities;
only 54 percent of life insurers rated
themselves either above average or
excellent. The situation with P&C
insurers is better, with 63 percent
rating themselves either above average
or excellent, and over a quarter rating
themselves excellent. (See Figure 9.)
Solvency II and other emerging
regulatory requirements have played
a key role in shaping firms reporting
capabilities. Regulators have increased
their focus on the quality and frequency
of reporting required by insurers, and
risk analytics is playing a major role in
ensuring that those requirements are
met. Similarly, internal reporting and
dashboards for senior management
are important for effective steering
of the business, and risk analytics
capabilities can help firms make
accurate and timely information
available to all decision makers.

In addition to the requirements


specific to Solvency II, the industry
will be challenged shortly to reflect
accounting-specific International
Financial Reporting Standards (IFRS)
as well. To improve internal reporting
and operational reporting to support
risk-enhanced core insurance processes,
it will be crucial to provide consistency
in regulatory reporting and to make use
of investments made in data governance
and overall data management.
However, because regulatory reporting
and operational reporting on riskenhanced insurance processes such
as product development and pricing
could generate different requirements
concerning the accuracy and granularity
of underlying data, industry and IT
experts may be called upon to align
these implementations in a costefficient and coordinated manner.

Solvency Pillar III requires insurers


to improve their transparency for
supervisors, as well as for the financial
markets, shareholders, policy holders,
rating agencies and regulators. That
broader and deeper transparency can
give insurers a more expansive view
of the company and its risk exposures.
If the same instruments are used for
external and internal reporting, then
more advanced capabilities may be
called for in areas such as real-time
reporting, automation to generate
multiple reports, and the ability
to provide end users the option to
customize reports. Efficient reporting
and business intelligence mechanisms
can take full advantage of the data and
help a firm move beyond compliance
for its own sake to a situation where
reporting and analytics are being
used to identify and move on business
opportunities. Based on our experience,
many companies already have or plan to
have data warehouses or management
information systems to meet their
internal steering requirements.

Not surprisingly, the most prominent


usage of risk reporting for insurers is
for regulatory compliance, followed by
the use of reporting by operations and
senior management.

Our analysis indicates that, to help


meet regulatory requirements for risk
reporting, the industry is currently
heavily engaged in collecting data and

Figure 9

Low percentages of insurers rank their reporting capabilities as excellent


How would you rate the maturity of your organizations risk analytics capabilities based upon the components of the
risk analytics process?
Insurance Property & Casualty
Management use and acceptance

36%

26%

Business rules development

37%

21%

Data quality and sourcing

32%

Reporting and dashboard


development

37%

Staffing

34%

Software

32%

Systems integration

31%

Above Average
Excellent
Base size: Total sample.

24

23%
26%

Insurance - Life

33%

29%

42%
39%

Banking

24%
18%

Chemicals

37%

30%

41%

26%

38%

46%
41%
36%

27%
21%

18%

42%

20%

38%

18%

39%

16%

42%

19%

34%

21%

42%

14%

29%

20%

23%

27%

36%

16%

17%

35%

22%

33%

23%

32%
40%

21%
15%
17%

Software and
systems
Our study found that insurance firms are
mostly relying on their in-house tools
and software for Solvency II reporting
purposes. However, the use of external,
third-party tools is an emerging trend
and several insurers are planning to buy
or lease specific reporting tools as well.
(See Figure 10.)
Differences between leaders and
laggards emerged in comparing
different companies approaches
to the use of software and tools to
meet Solvency II reporting needs.
For example, 67 percent of leaders in
Europe, Japan, South Korea and China
are considering the development or
enhancement of in-house software,
compared with only 24 percent of
laggards. And 24 percent of leaders
plan to buy or lease specific products
for meeting Solvency II reporting
requirements, compared with 18 percent
of laggards. A higher percentage of
laggards (69 percent) prefer to use
current actuarial tools for Solvency II
reporting than do leaders (52 percent).

The overall systems environment has


a clear effect on the adequacy of
analytics capabilities and, in turn,
on compliance effectiveness. Many
insurers find themselves susceptible
to errors and higher costs because
of heterogeneous, loosely coupled
systems, which often require a great
deal of manual input. Effective risk
analytics technologies improve the
level of automation which can increase
the accuracy of data, enhance speed
to market and reduce costs. Better
reliability can translate into improved
trust levels among shareholders as well
as auditors and regulators.

Asked to rate the maturity of their


staffing capabilities in the risk
analytics area, differences between
leaders and laggards emerged. Onethird of leaders rated themselves as
excellent in staffing, compared
with 13 percent of laggards. Seventyeight percent of leaders ranked their
staffing capabilities as above average
or better, compared with 48 percent
of laggards. Twenty-three percent of
laggards fear that finding the right
skilled staff will have a high degree
of impact on their risk management
processes, while only 11 percent of
leaders share that level of concern.

Talent management

Because of the relative immaturity


of the risk analytics field, talent
sourcing and development appears
to be lagging. Organizations should
consider strategizing now about how
to improve their talent management
processes for the risk analytics function,
and should consider internal sourcing
and development as well as the use
of external consultants and managed
services. Our study found that 71
percent of insurance firms are currently
using outside vendors and consultants
to build their risk analytics capabilities.

Current staffing devoted to analytics


and reporting is not necessarily large
within insurance firms. When asked how
many employees are typically engaged
in managing reporting for Solvency
II requirements, about one-third (31
percent) indicated that from three to
five people are involved; 21 percent
said that from six to 10 people were on
staff; 38 percent reported staffing levels
above 10 people.

Figure 10

Most insurance firms rely on in-house tools and software


What software would be used to meet Solvency II reporting requirements?
(Select all that apply)
All Insurance
Europe & Asia

37%

18%

Insurance - Property &


Casualty

38%

18%

Insurance - Life

Europe
17%

66%

65%

66%
68%
68%

36%

27%

5%

48%

35%

18%
Japan & South Korea

58%

62%
61%

33%

China
30%

Current actuarial tools


Development or enhancement of
in-house software

53%

67%

73%

Current reporting packages


Plan to buy or lease specific products
(e.g., SAS)

Base size: Europe, China, Japan & South Korea sample.

25

Looking Ahead: Growing More Mature


Risk Analytics Capabilities Through
Better Integration

26

Integration of risk
processes and
capabilities

As insurers look ahead to advancing


the maturity of their risk analytics
capabilities, what are some important
steps they can take? One of the most
pervasive challenges to be overcome
by insurers across the globe is a
siloed, non-integrated approach to
risk analytics. Eight-six percent of
respondents agree that developing
an integrated approach to risk and
analytics gives their organization
a competitive advantage; however,
few have actually achieved such a
level of integration. For example,
in spite of their confidence about
their analytics capabilities, about
half of life insurers (48 percent)
collect data about risk events only
in pockets within their companies.

Integration of specific analytics


capabilities across claims, underwriting
and distribution is seen by survey
respondents as a key to effective
risk management. Across the survey
population, 88 percent of insurance
firms feel that developing an integrated
approach to risk and analytics would
give their organization a competitive
advantage, and those numbers were
nearly identical for life and P&C
insurers. (See Figure 11.) With this
kind of integration, information used
to assess risk in one core insurance
process can be made available to
assess other business opportunities
from a risk/reward perspective.

The integration of risk and finance


processes within core insurance
activities can also be a source of
competitive advantage. Most insurers
have not linked risk and pricing with
sales but those who do can use riskrelated information more effectively to
support dedicated sales activities. These
activities can then be tailored to client
segments, providing a better perspective
on potential risks and rewards.

Figure 11

Insurers agree that an integrated approach to risk and analytics can provide competitive advantage
Would developing an integrated approach to risk and analytics give your organization a competitive advantage?

32%

85%

86%
54%

27%

32%

32%

53%

32%

59%

55%

85%

86%

87%

37%

53%

90%
53%
Yes, certainly
Yes, probably

11%
9%
5%
5%
All Insurance Insurance Europe & Asia Property &
Casualty

8%
5%
Insurance Life

14%
Japan &
South Korea

11%
5%
Europe

3%
7%

No, probably not


No, certainly not

China

Base size: Europe, China, Japan & South Korea sample.


Note: Due to rounding, figures may not total 100%

27

Differences among survey respondents


arose when looking more specifically
at different kinds of integration across
claims, underwriting and distribution.
For example, 38 percent of leaders rated
the integration between claims and
underwriting as excellent, compared
with only 8 percent of laggards. This gap
showed up consistently in the ability to
integrate other areas:
Claims and distribution: Leaders,
48 percent claim excellence; laggards,
18 percent.
Distribution and underwriting:
52 percent of leaders; 19 percent
of laggards.
Claims, underwriting and distribution:
38 percent of leaders; 11 percent
of laggards.

Integration with
management
processes
Integration with management processes
is also a challenge. Seventy-eight
percent of P&C firms and 66 percent
of life insurers say that the inability to
embed risk analytics into management
processes is having a high or medium
impact on their firms. In terms of a
specific capability such as stress testing,
only 27 percent of P&C insurers feel that
stress testing is integrated into strategic
decision making for large projects,
compared to 38 percent overall.
Overall, risk management can be
improved through the consideration
of risk in the decision-making process,
and analytics play a vital role. For
example, an effective integration of
risk-based capital methodologies in
decision-making tool kitsrequiring
high data quality and a common
measurement approach such as one
based on economic capitalcan
weigh both the combined effects of
risk-taking activity and the impact of
such activity on economic value. With
economic capital models, insurers

can optimize capital allocation from a


strategic risk/reward perspective, and
can also gain a potential competitive
advantage by leveraging enterprise
risk management tools and economic
capital modeling in their strategic
decision-making processes.

Integration of risk
models
Our survey also asked about the degree
to which insurers have integrated their
risk models. Only 32 percent of life
insurers and 31 percent of P&C firms
claim to have achieved a fully integrated
view of risk aggregated across models.
One in five insurers say that separate
risk models are used for each type of
risk. (See Figure 12.)
Model outputs are generally better for
a firm when the model can provide a
fully aggregated view of all types of
risk. To achieve this aggregated view, a
high level of integration between the
models is needed. This means that all
important models used for different
types of risk within the organization
should be able to make consistent
assumptions and generate comparable
results. Having a large number of

Figure 12

Only about one-third of insurers say they have a fully integrated view of risk across models
What is the level of integration for risk models in your organization?

27%

31%

32%

52%

49%

49%

24%

22%

55%

54%
There is a fully integrated view of risk
aggregated across models
There is some degree of integration
between models

21%

20%

19%

21%

23%

All Industries

Insurance Property &


Casualty

Insurance Life

Banking

Chemicals

Base size: Total sample.

28

Separate risk models are used for each


type of risk

non-integrated models can add to the


complexity and is potentially harmful
for the organization because the correct
level of risk exposure across all types of
risk can be difficult to quickly ascertain
when required.
Although having an integrated risk
model can be desirable, such an
outcome is often difficult to achieve
in practice. Fewer than one-third of
insurance firms reported having a fully
integrated view of risk across all models.
The good news, however, is that half of
insurance respondents have some level
of integration between their risk models.
This is encouraging to note because
these firms can plan to move from
partial integration to a more complete
integration over the course of time and
make better use of their risk models.

Enabling better
integration
What are some steps companies can
consider taking to address the challenge
of siloed or non-integrated risk
functions? Here are a few.

Consolidate and
standardize the IT
environment
In our experience, many insurance
companies operate with a fragmented
risk architecture that fails to support the
full use of risk management tools and
models within the context of the overall
business. Outdated legacy systems and
out-of-date architectures that prevent
effective integration are also a factor, a
restriction noted by 78 percent of P&C
firms and 66 percent of life insurers.
In other words, given the existing IT
landscape and the manner in which
different parts of the business operate,
risk analytics may amount mostly
to various point solutions generated
and used in different areas. Modeling
teams have one subset of technology,
underwriting teams have another, and
then those working on the reporting
side have their own homegrown system.
The systems in total may not provide an
integrated view of risk.

This situation can be addressed by


standardizing the IT environment.
A comprehensive, uniform IT
landscapereflecting an industryspecific reference architecture as a
structure to enhance capabilitiescan
help to support multiple functions
and realize available synergies. As
they contemplate moving to a more
integrated and holistic approach to risk
analytics, firms should keep in mind the
complementary nature of the various
elements involved in the transformation.
For example, improvement and
integration of IT architecture can
support increased automation and
make it easier to provide robust IT
support, which in turn can help to
reduce risk management costs.

Improve data governance


Data governance also challenges
many insurers. Effective integration
of analytics capabilities is enabled
by the ability to share high-quality
and consistent data. However, in
our experience, many firms have
insufficient rigor when it comes to
specifying who owns data, who sets
it up and who manages it. A potential
benefit of integration is consistent
data management between the risk and
finance functions, which can result in
lower costs, reduced financial risk and
lower required reserves.

Integrate with strategic


planning
Consideration should be given to
integrating risk management into
strategic planning so that investments
more adequately reflect the risks
involved. This integration can enable
the company to balance risk and reward
in considering available opportunities.
Based on our analysis, many companies
lack the common risk vocabulary, the
shared metrics and key performance
and risk indicators (KPIs/ KRIs) and the
firm-wide access to data (along with
centralized databases) needed to fully
integrate risk and financial information.

29

Conclusion: Driving Growth and


Better Compliance Through Risk
Analytics

30

Changing regulatory regimes such


as Solvency II put a high priority
on actuarial and risk management
capabilities, and improving analytics
capabilities is key to making that
happen. Under Solvency II, the actuarial
and risk management functions have
roles and responsibilities that go far
beyond standard activities such as
risk identification and modeling. The
impact of these functions within the
organization and on decision-making
processes is high.
Greater economic volatility in the
markets, accompanied by increased
uncertainty, has generated pressure to
improve risk management capabilities
in the insurance industry. Insurers
are investing in more sophisticated
risk analytics tools to improve the
measurement of rare risk events that
carry a high degree of severity for

their portfolios. These tools can help


to reduce underwriting risk and risks in
other areas, contributing to profitable
and sustainable growth.
New instruments such as mortality
bonds, along with highly risky and/or
complex assets such as hedge funds and
venture capital, call for consideration of
sophisticated risk management methods
and tools to provide a more accurate
picture of risk. These methods and
tools can help insurers manage their
exposures more effectively, and can also
support their efforts to capitalize on
opportunities, improve organizational
performance and, ultimately, enhance
long-term shareholder value.

open to the guidance of external


firms with experience in this area.
Over time, an integrated approach to
modeling and risk management can lead
firms to more predictive capabilities
and, ultimately, the possibility of
embedding real-time analytics into
business and management processes.

Insurers show a strong commitment


to making the investments necessarily
to improve the maturity of their risk
analytics capabilities, and they are

31

About the Authors


Eva Dewor
Eva Dewor is an executive director,
responsible for Risk Management in
Germany, Europe, Africa and Latin
America Insurance. Based in Munich
and with over 16 years of consulting
experience, Eva specializes in helping
organizations enhance their risk
management capabilities through
its integration in decision making,
steering and reporting. Working with
risk executives of multinationals
from across the financial services
industries, Eva helps them become
high-performance businesses.

Markus Salchegger
Markus Salchegger is a senior director,
responsible for Risk Management
Insurance in Austria, Germany and
Switzerland. Markus holds a PhD in
Mathematics, and over the past 15 years,
he has used his extensive experience in
insurance, reinsurance, banking, asset
management and software development
to analyze, design and deploy solutions
for risk management and financial service
applications that help clients become
high-performance businesses.

Ferko Spits
Ferko Spits is a senior manager
responsible for Accenture Risk
Management Insurance for North Asia
(China, Japan and Hong Kong). Based
in Hong Kong, for the last 13 years
Ferko has been working with financial
services companies to transform
their risk and finance functions,
processes, data management and IT
architectures. He combines broad
industry experience in the insurance,
reinsurance and banking sectors with
extensive specialization in risk and
regulatory requirements to help clients
become high-performance businesses.

Prasanna Varadan
Prasanna Varadan is a senior manager,
Risk Management, India. Based in
Chennai, India, Prasanna has more than
12 years of consulting experience in
financial services and risk management.
He has worked with global and regional
financial service firms across Africa,
Asia Pacific, Europe and North America
to transform their businesses and risk
capabilities. His specialized experience in
risk management, regulatory compliance,
credit risk and operating model strategy
helps Accenture create differentiated,
industry specific offerings to help clients
become high-performance businesses.

About Accenture
Management Consulting
Accenture is a leading provider of
management consulting services
worldwide. Drawing on the extensive
experience of its 16,000 management
consultants globally, Accenture
Management Consulting works with
companies and governments to achieve
high performance by combining broad
and deep industry knowledge with
functional capabilities to provide
services in Strategy, Analytics, Customer
Relationship Management, Finance &
Enterprise Performance, Operations, Risk
Management, Sustainability, and Talent
and Organization.

About Accenture Risk


Management
Accenture Risk Management consulting
services work with clients to create
and implement integrated risk
management capabilities designed
to gain higher economic returns,
improve shareholder value and
increase stakeholder confidence.

About Accenture
Accenture is a global management
consulting, technology services and
outsourcing company, with 257,000
people serving clients in more than
120 countries. Combining unparalleled
experience, comprehensive capabilities
across all industries and business
functions, and extensive research on
the worlds most successful companies,
Accenture collaborates with clients to
help them become high-performance
businesses and governments. The
company generated net revenues of
US$27.9 billion for the fiscal year ended
Aug. 31, 2012. Its home page is
www.accenture.com.

Copyright 2012 Accenture


All rights reserved.
Accenture, its logo, and
High Performance Delivered
are trademarks of Accenture.

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